Elder Law and You: Irrevocable vs. Revocable Trusts – What you need to know
By Jennifer B. Cona, Esq.
All trusts are not created equally; there are many different types of trusts used for a variety of purposes, such as asset protection planning, financial management, probate avoidance and tax planning. Two common types of trusts in estate and asset protection planning are revocable and irrevocable trusts.
A revocable trust is a trust where you, the trust creator, reserve the right to revoke or change the trust at any time. If properly structured and funded, a revocable trust can be helpful in avoiding probate and allowing for easier management of assets in the event of incapacity. If you own homes in more than one state, it may make sense to place your out-of-state property in a revocable trust to avoid the need for probate in two states. Beware, however, that a revocable trust offers no asset protection. For Medicaid purposes, all of the assets in a revocable trust are considered available and may have to be spent down on the costs of care.
The better option for most older adults is an irrevocable trust. This type of trust cannot be revoked or changed by you alone, but can be with the consent of the trust beneficiaries. The benefit of making a trust irrevocable is that it can be structured as a Medicaid asset protection trust.
An irrevocable trust set up for asset protection purposes can hold almost any type of asset, including your home, bank accounts, and investments. You cannot have access to the principal of the trust, but you can retain the right to receive the income (dividends and interest). After five years have passed, the assets held in the trust are protected with respect to Medicaid. You would not have to spend down those assets on the cost of care; they are protected and will be inherited by your beneficiaries.
By properly planning ahead, your assets can be maintained for quality-of-life items and ultimately left to your heirs. But creating the trust is only the first step. The trust also must be funded, meaning assets must be transferred or re-titled into the name of the trust. For example, bank and brokerage accounts need to be retitled in the name of the trust. When transferring real property to a trust, you will need to sign a new deed naming the trust as the owner of the property.
For many families in the metro NY area, their most valuable asset is their home. As such, we often transfer title to the home to the irrevocable asset protection trust in order to protect its value. You can still sell your home, purchase a new property, keep your real estate tax exemptions, and no one can sell your house without your consent. Other assets can be placed in a trust for asset protection purposes as well, such as investment accounts, bank accounts, mutual funds, and life insurance.
With the escalating cost of healthcare, it is more important than ever for older adults to protect the assets they worked their whole lives to save from a sudden healthcare crisis. An irrevocable trust is an important tool in that asset protection plan.
Be sure your Elder Law and Estate Planning attorney understands the extent of your assets and listens carefully to your concerns and goals so that together you can create a customized trust, estate and elder law plan.
Jennifer B. Cona, Esq. is the Founder and Managing Partner of Cona Elder Law located in Melville and Port Jefferson. The law firm concentrates in asset protection, estate planning, Medicaid benefits, probate and special needs planning. For information, visit www.conaelderlaw.com.
